US FINANCIAL MARKET
Dow Briefly Jumps Above 36000 – Wall Street Journal, 11/1/2021
- U.S. stocks edged higher to start the month as investors awaited fresh earnings and clarity later in the week on the Federal Reserve’s interest-rate plans.
- The Dow Jones Industrial Average briefly jumped above 36000 Monday morning, hitting 36009.74 in the first 15 minutes of trading. It was up about 0.4% later in the morning, to about 35946.
- If the index closes above 36,000, it will be the Dow’s sixth 1,000-point milestone of the year, the most in a single year on record. In January, the Dow closed above 31,000 for the first time.
- 82% of S&P 500 companies that have reported so far this season have beaten expectations for earnings, according to FactSet data from early Friday afternoon.
- Shares of Novavax rose more than 6% after the company said it had completed its rolling submission to Canada’s health regulator for authorization of its Covid-19 vaccine candidate.
- Some investors have sold long-duration government bonds, betting on higher interest rates. The yield on the 10-year Treasury note ticked up to 1.589%, from 1.555% Friday. Yields rise when prices fall.
- Overseas, the pan-continental Stoxx Europe 600 gained 0.5%. Shares of Barclays edged down 1% after the British bank’s chief executive stepped down, under pressure from regulators about how he characterized his relationship with convicted sex offender and financier Jeffrey Epstein.
- Benchmark European natural-gas prices gained 5% after reports that no gas was flowing to Spain through a major pipeline from Algeria, the latest setback in Europe’s efforts to stock up on fuel before winter.
- Brent crude futures, the benchmark in global oil markets, rose 0.7% to $84.33 a barrel.
- In Asia, Japan’s Nikkei 225 gained 2.6% after the ruling Liberal Democratic Party won a clear majority in national elections, giving new Prime Minister Fumio Kishida a solid foundation to build a long-lasting government.
- Elsewhere in the region, Hong Kong’s Hang Seng pulled back 0.9%, as index heavyweights Alibaba Group Holding and Tencent Holdings both dropped more than 2%. The CSI 300 in mainland China declined 0.4%, while indexes in South Korea and Australia advanced less than 1%.
American Airlines cancels more flights; total now over 2,000 – Reuters, 11/1/2021
- American Airlines said it canceled 262 additional flights on Monday, pushing the total number of cancellations since Friday to 2,211, as it grapples with staffing shortages and unfavorable weather.
- The U.S. carrier said Monday’s cancellations were about 5% of its total flights planned, as of 7.30 am ET.
- Severe winds at the Dallas/Fort Worth International Airport in Texas have reduced American’s arrival capacity by more than half, with the inclement weather also impacting the airline’s staffing, American had said over the weekend.
- Staffing shortages have hit American Airlines, Southwest Airlines and Spirit Airlines in particular, as they ramp up flights ahead of the holiday season but face problems finding enough pilots and flight attendants.
Coke to Pay $5.6 Billion for Full Control of BodyArmor – Wall Street Journal, 11/1/2021
- Coca-Cola is buying full control of BodyArmor for $5.6 billion in a cash deal that values the sports-drink brand at about $8 billion, amping up a rivalry with Gatorade.
- Coke, which already owns a stake in BodyArmor, announced the deal Monday, confirming an earlier report Sunday by The Wall Street Journal.
- Coke is buying the remaining 70% from the company’s founders and investors, as well as a group of professional athletes including the NBA’s James Harden and MLB’s Mike Trout who invested and helped market the drink.
- BodyArmor expects to generate about $1.4 billion in retail sales this year, Coke said. BodyArmor’s sales were about $250 million in 2018 when Coke first invested in the startup.
Mobile-Home Communities in U.S. Draw Record Investment – Bloomberg, 11/1/2021
- Investors are pouring record levels of money into manufactured housing, seeking stability and yield as the need for affordable living options increases across the U.S.
- Jones Lang LaSalle projects investment volume of $4.5 billion in mobile-home communities in the third quarter — an all-time high on a trailing four-quarter basis.
- Valuations for the communities reached a record in the second quarter of $46,970 per pad, the real estate services firm said in a report. Occupancies also climbed to a new high, at 95.4%.
- And rents rose throughout the pandemic, to a record $800 a month on average.
- While private capital represented 72% of mobile-home investment this year, institutional investors are getting more involved. They accounted for 22% of total volume, the highest percentage on record, according to JLL.
Even Paint Makers Are Feeling the Chip Shortage – Wall Street Journal, 11/1/2021
- The semiconductor shortage is impacting companies that don’t directly rely on computer chips, cutting into sales of glass, paint and industrial sandpaper.
- 3M, Axalta Coating Systems and Corning said this week that their sales are suffering because of the semiconductor shortage, as major customers produced fewer vehicles, washing machines and devices.
- Companies that provide services to manufacturers, like water-management company Ecolab and train operator Union Pacific are also being affected. Union Pacific said shipments by car and car-part makers fell 18% in its third quarter.
- Manufacturers said there isn’t much they can do to mitigate the semiconductor shortage fallout. Some said they were focused on meeting the demand that does exist, finding new customers for products and doing maintenance that was delayed during recent periods of higher demand.
SPACs under the microscope as lawsuits mount – Reuters, 11/1/2021
- Investors in recent months have accused companies, such as electric truck maker Nikola, of making misleading or false statements about their businesses through mergers with SPACs.
- Securities class actions against SPAC-related companies have been on the rise since 2019, when there were just two such lawsuits, according to a report from insurance brokerage Woodruff Sawyer.
- From January 2021 through October 29, 26 securities class actions were filed against SPAC-related companies, a 420% jump from 2020 when only five suits were brought, according to the data.
- The increase comes as the U.S. Securities and Exchange Commission is ramping up enforcement actions and scrutiny of the SPAC deals market, a booming business for Wall Street over the past 19 months.
Striking Deere Workers Are Set to Vote Tuesday on New Contract Offer – Wall Street Journal, 11/1/2021
- Striking workers for Deere are scheduled to vote Tuesday on a contract proposal offering bigger raises and bonuses, as the farm-equipment maker tries to end its first strike in 35 years.
- Deere announced a tentative deal on Saturday for a six-year contract that bumps up the raises and bonus levels from a proposal that members of the United Auto Workers union rejected three weeks ago.
- Workers said the earlier offer of raises and other benefits was inadequate at the same time inflation is at its highest in over a decade. More than 10,000 workers at 14 plants went on strike.
- The new proposal would provide 10% raises for this year, vs. the 5% to 6% increase for the first year included in the previous offer, according to a summary of the offer distributed by the union.
- The briefing from the union said workers would receive 5% raises in 2023 and 2025, up from 3% increases in the previous offer. Workers would receive lump-sum bonuses amounting to 3% of their pay for 2022, 2024 and 2026, compared with 2% bonuses in the offer voted down. Employees also would receive an $8,500 bonus if the deal is ratified Tuesday.
US ECONOMY & POLITICS
Manufacturing Growth in U.S. Eases as Supply Chain Issues Linger – Bloomberg, 11/1/2021
- Persistent supply chain challenges continued to weigh on U.S. manufacturers in October, lengthening supplier delivery times and bloating a measure of inventories.
- The Institute for Supply Management’s gauge of factory activity fell to 60.8 from 61.1 in September, according to data released Monday. Readings above 50 indicate expansion. The median projection in a Bloomberg survey of economists had called for 60.5.
- ISM’s gauge of supplier deliveries rose to a five-month high in October, indicating longer lead times faced by producers for raw materials.
- That’s also contributed to a sharp rise in the group’s inventory index, which swelled to its highest level since 1984. The gauge also captures growth in work-in-progress inventories and challenges distributing finished goods.
- The average lead time for materials used in the production process rose to 96 days in October, the highest in data back to 1987. Average lead time for supplies used for maintenance, repairs and operations climbed to 49 days, also a record.
- Meantime, new orders eased, which helped to slow the pace of backlog growth. While ISM’s measure of production was little changed, the bookings gauge dropped to 59.8, its weakest level since June of last year.
- Materials costs continue to climb. A gauge of prices paid rose to a three-month high of 85.7 in October.
Biden Plan Gathers Steam as Feuding Democrats See Path to Vote – Bloomberg, 11/1/2021
- President Joe Biden’s economic agenda appears on track for passage by Congress even as Democrats are still skirmishing over lingering differences on a $1.75 trillion social-spending plan.
- House Democratic leaders are pushing hard to get that package finalized, with votes on both that bill and a smaller infrastructure plan this week — the latest in a string of self-imposed deadlines. The Senate, which already approved the public-works bill, is likely to vote on the larger package later in the month.
- A House Democratic leadership aide said Sunday that progress had been made on several of the outstanding issues, including drug pricing, but that a Monday Rules Committee meeting that would have prepared the bill for a Tuesday floor vote was postponed.
- The White House outline detailed nearly $2 trillion worth of tax hikes to fund a $1.75 trillion package, giving Democrats some wiggle room to scale back some of the levy increases.
- The measures have yet to be scored by the Joint Committee on Taxation, Congress’s non-partisan tax scorekeeper, so the estimates could change — causing Democrats to search for more revenue if the official projections fall short of the administration’s expectations.
Construction spending unexpectedly falls in September – Reuters, 11/1/2021
- U.S. construction spending unexpectedly fell in September amid declines in outlays on both private and public projects.
- The Commerce Department said on Monday that construction spending dropped 0.5% after edging up 0.1% in August. Economists polled by Reuters had forecast construction spending gaining 0.4%.
- Construction spending increased 7.8% on a year-on-year basis in September. The government reported last week that gross domestic product increased at a 2.0% annualized rate, stepping down from the April-June’s robust 6.7% pace.
- Spending on private construction projects decreased 0.5% in September after falling 0.3% in August. Outlays on residential construction dropped 0.4% after nudging up 0.1% in August.
- Single-family homebuilding spending declined 0.6% and outlays on multi-family housing projects slipped 0.3%.
- Investment in private non-residential construction like gas and oil well drilling fell 0.6% in September. Spending on structures declined for a second straight quarter in the July-September period, led by commercial and healthcare structures.
- Spending on public construction projects tumbled 0.7% in September after increasing 1.2% in August. Outlays on state and local government construction projects fell 0.4%, while federal government spending plunged 4.3%.
Covid-19 Pushed Many Americans to Retire. The Economy Needs Them Back. – Wall Street Journal, 11/1/2021
- The Covid-19 pandemic has boosted retirements among baby boomers, further straining the tight labor supply and leaving a hole for employers to fill.
- The Federal Reserve Banks of Kansas City and Dallas are among the groups tracking the growth in retirees.
- The share of the population in retirement from February 2020 to April this year was higher by 1.5 million people than it would have been if the 2019 retirement trend had continued, according to the Dallas Fed.
- A higher share of workers without a college degree retired before the traditional retirement age of 65 compared with those who had a college education, according to the Retirement Equity Lab.
- The lab’s analysis of census data found that retirement rates for those ages 55 to 64 without a college degree rose by 0.8 percentage point from 2019 to 2021, compared with a decline of 0.6 percentage point for similarly aged workers with a degree.
- About 38% of workers aged 62 and older and in the lowest third of weekly earnings no longer held jobs in the fourth quarter of 2020, up from 28% in the second quarter of 2019, according to the analysis from Geoffrey Sanzenbacher, a research fellow at the center.
- Among similarly aged workers in the highest third of weekly earnings, 22% weren’t working during the fourth quarter of 2020 compared with 18% in the second quarter of 2019.
EUROPE & WORLD
China’s Manufacturing Activity Contracts for Second Straight Month – Wall Street Journal, 11/1/2021
- A contraction in China’s factory activity worsened for a second straight month in October, adding evidence that growth momentum has weakened as the country’s vast manufacturing sector is weighed down by soaring raw material costs, a widespread power crisis and a sharp slowdown in the property sector.
- China’s official manufacturing purchasing managers index dropped to 49.2 in October, according to data released Sunday by the National Bureau of Statistics, lower than September’s 49.6 reading and the lowest since the outbreak of the pandemic in February 2020.
- The recent jump in commodities prices pushed the subindex for output to 61.1 in October from 56.4 in September, hitting the highest level since 2016, when the data was first published.
- Since September, China has been dealing with power rationing and blackouts, partly the result of aggressive energy-efficiency targets set by Beijing and aimed at reaching peak carbon emissions before 2030.
- Exports, a key engine of the country’s economic rebound following the coronavirus outbreak, also showed softness in October, according to Sunday’s data release.
- A subindex measuring new export orders rose to 46.6 in October, improving slightly from September’s 46.2 but still remaining deep in contraction territory.
- The new orders subindex, however, dropped further from the previous month to 48.8 in October.
- The nonmanufacturing PMI came in at 52.4 in October, versus 53.2 in September, while the subindex tracking the services sector declined to 51.6 in October from 52.4 in the previous month.
China Locks 30,000 Visitors Inside Shanghai Disneyland After One Guest Got Covid-19 – Wall Street Journal, 11/1/2021
- Shanghai Disneyland was temporarily shut down from Sunday after a visitor was found to be Covid-19-positive, underscoring the economic disruption businesses in China face as the country strives to stamp out infections.
- Shanghai Disneyland was required to test almost 34,000 people Sunday before visitors could leave the resort, after a woman who had attended the park a day earlier was found to be infected with Covid-19.
- Sunday’s visitors all tested negative but were ordered to self-isolate for another 24 hours before a second test.
- The park and Disneytown, a shopping and dining complex, will be closed until at least Wednesday, Shanghai Disneyland said.
- The world’s most populous nation has committed to maintaining “zero tolerance” for the virus despite criticism from business groups, a close to 80% vaccination rate, and a world which is gradually learning to live with Covid-19.
Chinese Developer Yango Group Proposes Bond Swap to Avoid ‘Imminent’ Default – Wall Street Journal, 11/1/2021
- The extreme dislocation in the market for junk bonds of Chinese companies has put another developer on the brink of default.
- On Monday, Yango Group asked international investors to swap $747 million of dollar debt for new bonds, blaming a shutdown of its usual financing channels for the cash crunch.
- The Shenzhen-listed Yango Group said the exchange was part of its efforts to “improve our liquidity, preserve options to stabilize our operations as a going concern, and avoid imminent payment defaults and potential holistic restructurings of our debts and business operations.”
- It is offering to exchange three sets of bonds for new debt due September 2022 with a 10.25% coupon. Investors will also get $25 in cash for every $1,000 in face value of bonds they exchange.
U.K. Job Market May Be ‘Alarmingly Tight,’ Budget Official Says – Bloomberg, 11/1/2021
- The U.K labor market may be “alarmingly tight” and could stoke wage pressures, Office for Budget Responsibility member Charlie Bean told lawmakers.
- In testimony to the House of Commons Treasury Committee, Bean said the Bank of England would have little choice but to raise interest rates if the end of the furlough scheme does not bring more workers into the jobs market.
- BWith vacancies running at a record high, a shortfall of workers will drive up pay. The OBR, the government’s fiscal watchdog, estimates there were around 200,000 people on furlough who are now looking for jobs, following the end of the wage-subsidy program on Oct. 1.
- Unless labor shortages ease, Bean warned, the cost of servicing the national debt could rise by 30 billion pounds ($41 billion) a year if inflation peaked at 5.4% and interest rates hit 3.5%.
- The Republic of Turkey was proclaimed under Mustafa Kemal Ataturk. (1923)
- The New York Stock Exchange crashed on Black Tuesday, precipitating the Great Depression. (1929)
- Israel invaded the Egyptian Sinai Peninsula during the Suez Canal crisis. (1956)
- European leaders signed the European Union’s first constitution. (2004)
- Hurricane Sandy smashed into the eastern seaboard of the U.S., killing 117 people in the U.S. and 69 in Canada and the Caribbean. The storm caused about $50 billion in damage in the U.S. (2012)